Correlation Between Longjian Road and Chinese Universe

Can any of the company-specific risk be diversified away by investing in both Longjian Road and Chinese Universe at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Longjian Road and Chinese Universe into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Longjian Road Bridge and Chinese Universe Publishing, you can compare the effects of market volatilities on Longjian Road and Chinese Universe and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Longjian Road with a short position of Chinese Universe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Longjian Road and Chinese Universe.

Diversification Opportunities for Longjian Road and Chinese Universe

0.83

Correlation Coefficient

Longjian Road  Chinese Universe

Very poor diversification

The 3 months correlation between Longjian and Chinese is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Longjian Road Bridge and Chinese Universe Publishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chinese Universe Pub and Longjian Road is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Longjian Road Bridge are associated (or correlated) with Chinese Universe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chinese Universe Pub has no effect on the direction of Longjian Road i.e., Longjian Road and Chinese Universe go up and down completely randomly.

Pair Corralation between Longjian Road and Chinese Universe

Assuming the 90 days trading horizon Longjian Road Bridge is expected to generate 1.88 times more return on investment than Chinese Universe. However, Longjian Road is 1.88 times more volatile than Chinese Universe Publishing. It trades about -0.04 of its potential returns per unit of risk. Chinese Universe Publishing is currently generating about -0.11 per unit of risk. If you would invest  402.00  in Longjian Road Bridge on December 1, 2024 and sell it today you would lose (39.00) from holding Longjian Road Bridge or give up 9.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Longjian Road Bridge  vs.  Chinese Universe Publishing

Longjian Road Bridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Longjian Road Bridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Chinese Universe Pub

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chinese Universe Publishing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Longjian Road and Chinese Universe

The main advantage of trading using opposite Longjian Road and Chinese Universe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Longjian Road position performs unexpectedly, Chinese Universe can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Chinese Universe will offset losses from the drop in Chinese Universe's long position.

The idea behind Longjian Road Bridge and Chinese Universe Publishing pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.